Insurers are supposed to handle claims in good faith and pay out benefits to injured workers when appropriate. However, these companies are driven by a profit motive, and they will look for reasons to deny claims if possible. If they break the rules governing the workers’ compensation system, an insurer may be required to pay penalties to an employee under state law. This is also true of employers that are self-insured, meaning that they cover the costs of injured employees. (Employers may need to pay penalties to the state workers’ compensation agency in other situations, such as when an employer fails to purchase workers’ compensation insurance or fails to report an employee’s injury.)
Penalties often arise in a situation in which an insurer fails to reach a decision on a claim within the deadline imposed by state law. An insurer usually has 30 days or less to decide whether to accept or deny a claim once it receives the report of injury from the worker or their employer. These penalties may amount to as much as 25 percent in some states, or they may be more in the vicinity of 10 percent.
Responsibility for a workplace accident or illness usually makes no difference to the payment of workers’ compensation benefits. This is because workers’ compensation is a no-fault system. There may be situations in which an employer is ordered to pay extra penalties, however, if dangerous workplace conditions or deliberate violations of safety rules played a role in an accident. The misconduct usually must be serious and intentional. Some states double the benefits awarded in these situations, or they may provide for a smaller increase.
Failure to Make Required Payments
An insurer needs to comply with court orders or settlement agreements that require making payments to an injured employee. If it does not, or if it makes payments late, it may be required to pay penalties in addition to the payments set out under the order or agreement. In New York, for example, a settlement must be paid within 10 days of the date specified by the agreement, or the insurer will face a 20 percent penalty.
Denying or Defending a Claim in Bad Faith
Many workers’ compensation claims are denied when they are initially made, only to be approved later in the process. Insurers try to deny as many claims as possible to protect their bottom line. As a result, a worker might receive benefits much later than they should have, causing unnecessary burdens and stress. If an insurer unreasonably fails to pay benefits, it might be ordered to pay a penalty, consisting of a certain percentage of the benefits award, in addition to the award. It also may need to pay interest on the late payments.
These types of penalties also can result if an insurer unreasonably defends its denial of a claim when the worker appeals the denial. For example, the insurer may be required to pay double the amount of benefits in some states. Penalties also may cover attorney fees and court costs for the worker, which means that these costs are not subtracted from the worker’s award.